Marketing Module: Price Discovery Review and Implications Report

This report delves into the concept of price discovery in marketing by analyzing three peer-reviewed articles. It examines the background of the articles, highlighting research issues such as the impact of average pricing, market trends, and premium pricing strategies on customer behavior. The major findings reveal the significance of price discovery for business firms, the implications of different pricing policies, and the benefits of aligning prices with customer demands. The report further explores the implications for marketing managers, emphasizing the importance of considering supply and demand, manufacturing costs, and brand switch propensities. Key issues discussed include the negative aspects of neglecting price discovery and the reasons for its underutilization, along with recommended measures for effective implementation. The analysis underscores the crucial role of price discovery in influencing customer behavior, achieving long-term growth, and maintaining a competitive advantage in the dynamic business environment.

Running head: PRICE DISCOVERY IN MARKETING
Price Discovery in Marketing
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Table of Contents
Introduction................................................................................................................................2
Background of the articles.........................................................................................................2
Research issues in the selected articles......................................................................................3
Major findings............................................................................................................................4
Implications for marketing managers as outlined in the articles................................................5
Key issues discussed in the articles and recommended measures.............................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
As opined by Miao et al. (2017), globalization by converting the entire business world
into a global village wherein different business firms from the diverse parts of the world are
being able to indulge in trade and commerce had significantly enhanced the aspect of
business competition. Chen, Chung and Lien (2016) are of the viewpoint that the business
firms more than ever need to take into account the prices that they are charging from the
customers for the products or services that they offer since the entity of price is one of the
most important factors which influence the buying behavior of the customers. However, for
the purpose of fixing the prices of the commodities or the services, the firms not only need to
take into account their manufacturing cost but also the market trends, customer demands and
other factors which are likely to affect the customer decision making process (Narayan and
Smyth 2015). It is precisely here that the notion of ‘price discovery’ gains prominence within
the cannon of the contemporary business world since it enables the firms to fix the right
prices for the commodities or services offered by the firms which in turn would enable them
to influence the customers to opt for them. This paper will explore the concept of price
discovery by undertaking an analysis of three peer-reviewed articles related to the same.
Background of the articles
The three articles which have been selected for the report are “Price discovery among
SSE 50 Index‐based spot, futures, and options markets” by Ahn and Sohn (2019), “Learning
and price discovery in a search market” by Lauermann, Merzyn and Virág (2017) and “Time-
varying price discovery in the eighteenth century: empirical evidence from the London and
Amsterdam stock markets” by Bell, Brooks and Taylor (2016). Lauermann, Merzyn and
Virág (2017) have stated that one of the major challenges that the firms face for the effective
usage of the concept of price discovery is the fact that they are not always sure regarding the

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market trends or customer demands because of the dynamicity of the contemporary business
world. The net result of this is that the firms often try to take the help of the policy of average
pricing for the commodities or the services that they offer to the customers. On the other
hand, Ahn and Sohn (2019) after studying the market trends and derivates have articulated
the viewpoint that the firms in the absence of any substantial framework of effective
understand the pricing requirements of the customers inevitably end up taking the help of the
pricing strategy of premium pricing. This is significantly rooted in the psychology of the
buyers because of the fact that the buyers over the years have developed the idea or the belief
that the products or services having premium prices are better in quality than others. Lastly,
Bell, Brooks and Taylor (2016) have tried to analyze the concept of price discovery in the
historical context and thereby come to the conclusion that the firms which effectively utilize
the concept of price discovery have been able to derive significant benefits or rewards
through the usage of the same for the pricing of the commodities or the services offered by
them.
Research issues in the selected articles
The major research issue that the authors, Lauermann, Merzyn and Virág (2017), have
highlighted in their article is the fact that they have tried to analyze the impact of the average
pricing policy which is most commonly used by the different firms has on the buying
behavior of the customers. For example, it is a commonly known fact that the entity of price
has a profound impact on the buying preferences or the behavior of the customers. Thus, the
researchers have tried to find out whether this kind of price discovery used by the firms
positively affect the customer behavior or negatively. On the other hand, the research issue
that has been selected by the authors Ahn and Sohn (2019) is manner in which the market
trends influence the concept of price discovery and also the impact that the premium pricing

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policy have on the customers. Lastly, the research issue which have been selected by the
authors Bell, Brooks and Taylor (2016) is the analyze the rewards or the benefits that the
firms can gain through the usage of the process of price discovery in the face of the ever
increasing brand switch tendencies on the part of the customers. This is important because of
the fact that the number of choices or options which are available to the contemporary
customers had increased in an exponential manner and thereby along with the entity of
quality the aspect of price is also an integral one for the prospects of the commodities or the
services that they offer.
Major findings
Lauermann, Merzyn and Virág (2017) in their article have found that the business
firms initially begin by analyzing the prices charged by their competitors for the same
products or services that the concerned firm offers to the customers. More importantly, along
with this factor, the firms also need to take into account the market demand for the concerned
product or service and also the factors which propel the customers to opt for the same. In this
regard, it needs to be said that the authors found that the sale of the commodities or the
services offered by a firm is directly related to the prices charged by the firms for the same.
For example, if a product or service however good in quality or other attributes is being over-
priced by the firms then it is more likely that the customers will opt for the products or
services offered by the other firms which are next best in quality and other attributes. Thus, it
can be derived that the concept of price discovery had become an integral one for the
business firms and their financial prospects or profitability greatly depends on this process.
Ahn and Sohn (2019) have found that in the face of ever growing market uncertainty
and also market derivates, the firms are increasingly resorting to the usage of the method of
premium pricing policy. More importantly, the authors found that the firms find it much

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simpler or easier to use this policy or strategy rather than undertaking the arduous process of
price discovery. Furthermore, it is seen that usage of this process safeguards the firms against
the substantial regulation changes which have become a common part of the contemporary
business world. However, at the same time it is seen that the usage of this policy rather than
the use of the method of price discovers is likely to adversely affect the prospects of the
concerned firm in the longer run because of the fact that not many customers are being able
to purchase the commodities or services which have premium prices. The net result of this is
that in the longer run this is likely to significantly reduce the customer base of the firms and
thereby significantly hurt their profitability.
Bell, Brooks and Taylor (2016) in their article found that the firms which are actively
taking the help of the concept of price discovery are likely to derive various benefits or
rewards that the other firms not using this concept fail to get. For example, the authors found
that one of the major benefits that the firms can derive through the usage of this process is the
fact that the prices which are being charged by them for the commodities or services would
be in synchronicity with the demands of the customers. This is important because of the fact
that it is likely to help the firms to earn the satisfaction as well as loyalty of the customers and
thereby attain long-term growth or even competitive advantage within the business market of
their operation. However, the firms which are taking the help of the average pricing policy or
the premium pricing policy fail to get these benefits because of the fact that the prices of the
commodities or the services that they charge from the customers are not in synchronicity with
their needs or demands.
Implications for marketing managers as outlined in the articles
The findings of the three articles under discussion here have important implications
for the contemporary marketing managers because of the important concepts that they

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propound. In this regard, it needs to be said that the three articles under discussion here in a
succinct manner highlights the need on the part of the managers as well as the business firms
to which they are related to take into account the concept of price discovery and also the
likely benefits that they can derive from the effective usage of the same. Vail and Dahl
(2015) are of the viewpoint that this becomes especially important from the perspective of the
contemporary business world because of the frequent brand switch propensities of the
customers on the score of the plethora of the options that they have. More importantly, recent
researches have shown that the entity of price is one of the major factors which significantly
influence the buying decision of the customers. The net result of this is that it has become all
the more important for the managers and also the different firms to not only analyze the
markets as well as the customers but also to fix the prices of the commodities or the services
offered by them on the basis of these factors (Hung et al. 2018).
Narayan et al. (2016) are of the viewpoint that one of the most important factors
which the managers as well as the business firms need to take into account during the fixation
of the prices for the commodities or the services offered by the customers is the factor of
supply and demand. For example, the managers as well as the firms have the leverage to fix
relatively higher prices for the products or services which are in high demand or preference
among the customers and it is likely that this will not significantly hamper the sale of the
concerned products or services and will also increase the profitability of the concerned firm
(Brandvold et al. 2015). However, if the managers or the firms increase the price of the
commodities or the services which are not in demand among the customers then this is likely
to adversely affect not only sale of the concerned commodities or services but at the same
time likely to take a toll on the profitability of the concerned firm. In addition to these,
another important factor that the managers as well as firms need to take into account for the
fixation of prices is cost that they have incurred for the manufactured of the products or

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services. This is important because of the fact that if the managers or the firms fix the price of
the products or services below the manufacturing cost incurred by them then this can have
disastrous effect for the concerned firm.
Key issues discussed in the articles and recommended measures
A common aspect among all the three articles selected is the fact that they all
highlight the negative aspect of not taking the concept of price discovery into account by the
firms. However, at the same time it is seen that the articles also highlight the reasons why the
majority of the firms even in the present times fail to take into account the concerned
concept. In this regard, Ahn and Sohn (2019) have stated that because of inadequate market
data and also the difficulties that the firms for the analysis of the pricing needs of the
customers they simply adopt the premium pricing policy. However, the authors at the same
time state that this should not be the case since it is likely to adversely affect the profitability
of the concerned firm in the longer run. In contrast to this, Lauermann, Merzyn and Virág
(2017) have stated that because of the expenses as well as resources that the firms need for
the pursuit of the policy of price discovery, the firms often end up taking the help of the
average pricing policy which in turn can significantly reduce the profitability of the firms.
Lastly, Bell, Brooks and Taylor (2016) have suggested that although there are many firms
which get attracted by the benefits offered by the concept of price discovery and thereby try
to follow yet it is seen that they follow it only half-heartedly and thus fail to get the desired
results.
Some of the most important recommendations that the firms can follow for effectively
using the concept of price discovery are listed below-
 Conducting effective marketing research: The firms and the managers need to
undertake effective research regarding the pricing policy followed by their rivals and

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also take into account the customer expectations for fixing the prices of the services or
goods offered by them. This will help them to gain a higher amount of profitability
and also competitive advantage within the business market in the longer-run.
 Fixing the prices on the basis of demand: The firms while fixing the price of the
products or services offered by them needs to take into account the demand of the
concerned product or service. This is likely to offer them a clear idea regarding the
kind of price that they charge from the customers for the products or services offered
by them.
 Fixing the prices as per the needs of the customers: The firms also need to take
into account the pricing needs of the customers while fixing the prices of the products
or services offered by them. This is important because of the fact that if the prices
charged by the firms are not in alignment with the needs of the customers then it is
likely that they would not opt for it.
Conclusion
To conclude, the concept of price discovery had become important within the
framework of the contemporary because of the fact that in the present times it is seen that the
entity of price is one of the prominent factors which influence the buying behavior of the
customers. More importantly, the firms need to ensure that the price that they are charging
from the customers for the products or services they are offering should be in synchronicity
with the needs of the customers and as per the demands of the concerned products or
services. These aspects of the concept of price discovery become apparent from the above
analysis of the three articles which had been selected for the paper.

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References
Ahn, K., Bi, Y. and Sohn, S., 2019. Price discovery among SSE 50 Index‐based spot, futures,
and options markets. Journal of Futures Markets, 39(2), pp.238-259.
Bell, A.R., Brooks, C. and Taylor, N., 2016. Time-varying price discovery in the eighteenth
century: empirical evidence from the London and Amsterdam stock
markets. Cliometrica, 10(1), pp.5-30.
Brandvold, M., Molnár, P., Vagstad, K. and Valstad, O.C.A., 2015. Price discovery on
Bitcoin exchanges. Journal of International Financial Markets, Institutions and Money, 36,
pp.18-35.
Chen, W.P., Chung, H. and Lien, D., 2016. Price discovery in the S&P 500 index derivatives
markets. International Review of Economics & Finance, 45, pp.438-452.
Hung, J.C., Liu, Y.H., Jiang, I.M. and Liang, S., 2018. Price Discovery and Trading Activity
in Taiwan Stock and Futures Markets. Emerging Markets Finance and Trade, pp.1-14.
Lauermann, S., Merzyn, W. and Virág, G., 2017. Learning and price discovery in a search
market. The Review of Economic Studies, 85(2), pp.1159-1192.
Miao, H., Ramchander, S., Wang, T. and Yang, D., 2017. Role of index futures on China's
stock markets: Evidence from price discovery and volatility spillover. Pacific-Basin Finance
Journal, 44, pp.13-26.
Narayan, P.K., Phan, D.H.B., Thuraisamy, K. and Westerlund, J., 2016. Price discovery and
asset pricing. Pacific-Basin Finance Journal, 40, pp.224-235.

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Narayan, S. and Smyth, R., 2015. The financial econometrics of price discovery and
predictability. International Review of Financial Analysis, 42, pp.380-393.
Vail, J. and Dahl, A., 2015. Discovery Cost Shifting: Has Its Time Come. Judicature, 99,
p.68.